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Friday, April 22, 2016

Going grey, staying skilled

by Marco PaccagnellaAnalyst, Directorate for Education and Skills, OECD

The population is “greying” in most advanced countries as well as in some developing countries. Many governments are struggling to address the challenges resulting from this demographic transition, from rising costs of healthcare, to worries about the sustainability of pension systems.

Increased life expectancy represents one of the great achievements of modern societies: living longer and better has been a dream of past generations. At the same time, it implies changes to many aspects of life. To finance retirement incomes and aged care, many governments have reformed their pension provisions and are asking individuals to work longer for less-generous pensions and to contribute more to the costs of care. When such reforms are passed during times of sluggish economic growth and rising unemployment, they tend to create discontent not only among older workers (who may long to retire), but also among younger adults, who may feel that delaying the retirement of older workers reduces their opportunities. At the same time, older workers may feel threatened by the increasingly rapid pace of technological change, and fear that they will not be able to find a new job, should they be laid off in a highly competitive labour market.

Managing these issues is extremely complex, given the interests involved and the interaction between different areas of social and economic policy. Yet, there is little doubt that skills development will play a central role in solving the puzzle. A big question is whether, and to what extent, skills decline with age. Is it true that older workers are less skilled, and therefore less productive than younger workers? If that’s the case, how can we make sure that people maintain a sufficiently high level of skills proficiency over an increasingly long horizon?

New evidence from the OECD Survey of Adult Skills and examined in the most recent issue of Adult Skills in Focus is extremely relevant to this debate. It provides an accurate picture of the cognitive skills of adults in a wide range of countries, and links such skills to important economic and non-economic outcomes, such as employment, wages, and health status.

The data suggest that proficiency in skills such as literacy and numeracy declines with age, although slowly, and not much. More important, there is considerable variation across countries in the extent and size of differences in skills proficiency related to age, suggesting that policies can play an important role in shaping the evolution of skills over a lifetime. Yet while skills decline with age, wages and employment rates typically do not. This could suggest that older workers are overpaid, given their productivity. If that were the case, older workers would be justified in fearing they are more likely to be dismissed, and that they would have a hard time finding a new job if they were. But productivity is a complex concept, and the cognitive skills measured in the Survey of Adult Skills constitute only a fraction of the skills portfolio that employers reward. With experience, workers are likely to develop an entire range of other skills that are much more difficult to measure than literacy or numeracy, but that are equally, if not more, valuable to employers.

This is not to downplay the importance of cognitive skills. The data also show that proficiency in literacy influences the wages and likelihood of employment among older workers more than it does among younger workers.

What can be actually done to sustain the skills of people as they age? As usual, prevention is better than cure. Improving the quality of education, i.e. ensuring that people leave formal education with the highest possible level of literacy and numeracy proficiency, is likely to yield large benefits, more than simply increasing the time spent in education. Starting working life with high skills increases the chances of entering the virtuous circle in which skills provide access to the opportunities, such as good jobs and training that further develop skills.

Training is clearly important, but targeting access is probably even more important. The overall rate of participation in training appears to have little relationship to the size of differences in literacy proficiency between the young and the old. Countries with large differences in literacy proficiency between younger and older adults tend to be countries in which training is disproportionately taken up by young adults.

As other recent research show, retirement appears to accelerate the loss of cognitive skills. This suggests that policies to delay retirement may benefit the cognitive skills of existing workers, but also that policies to encourage older people to remain engaged are important for those who have left the workforce.

The bad news is that cognitive skills inevitably decline with age. The good news is that this is only part of the story. There is large scope to shape the evolution of skills over a lifetime; and cognitive skills, while important, are not the only determinant of people’s success in life.